The rise and rise of ETFs

The first ETFs were created in North America in the early 1990s, tracking the performance of sharemarkets in the USA and Canada. Since then, the number and variety of ETFs have risen sharply as their popularity has increased.

These days there are thousands of ETFs to choose from, providing investors with easy access to sharemarkets around the world. Others are focused on bonds, commodities, currencies and a range of other asset classes. For now, let’s focus on sharemarket -based ETFs.

Investors who want to access the long-term growth of sharemarkets can do so in several ways.

They can buy shares in companies that are listed on a securities exchange, like the ASX in Australia or the Hang Seng in Hong Kong. Investors often prefer to buy companies they know and trust – local banks, insurers and telecoms companies, for example. Owning one or just a few individual shares can be risky however, as unforeseen issues or lower-than-expected corporate profitability can result in disappointing share-price performance.

To help overcome this, some investors prefer managed funds which are offered by professional investment firms. These products typically invest in a broad range of shares, thereby spreading risk across a greater number of companies. While managed funds have many advantages over holding shares directly, some investors are discouraged by the administration requirements or the minimum investment which is typically $25,000. 

Sharemarket-based ETFs operate much like managed funds, investing in a diversified range of listed companies, however they do offer key benefits to investors.  Management fees can be lower than managed funds, particularly for traditional passive ETFs that track a benchmark. ETFs have other advantages over managed funds, too. Like ordinary shares, ETFs trade on recognised stock exchanges. As a result, they’re easy to buy and sell. Moreover, just like the share prices of listed companies, ETFs are traded on a live basis and the price will reflect the prevailing market price for purchase and sale of units, meaning people can easily track the value of their investment.

With a combination of immediate liquidity (the ability to buy and sell whenever stock markets are open and the ETF remains trading), diversification and ease of access it's understandable that ETFs have become so popular. 

Fidelity has recently launched its first active ETF, providing investors with easy access to a portfolio of companies in some of the world’s fastest growing economies.

Sharemarket-based ETFs operate much like managed funds, investing in a diversified range of listed companies, however they do offer key benefits to investors.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment. Investments in small and emerging markets can be more volatile than investments in developed markets.

This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

© 2018 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

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